1099-R for inherited accounts

[Tom Scott]

I have several inherited IRA and Roth IRA accounts that I have been taking minimum required distributions from for several years.  When entering my 2019 1099Rs I am not getting the same tax liability results as previous years.  For Example this year when I enter a distribution from an inherited IRA that is coded as 4 (death) with box IRA/SEP/SIMPLE checked it appears none of the distribution is being considered taxable and the entire Federal income take withheld at the time of the distribution is being returned to me.   Conversely when I enter info for an inherited ROTH IRA it is being considered as a taxable transaction (My taxes owed increase).  Is something wrong with Turbo Tax, how my 1999Rs are coded or am I doing something incorrectly?

[dmertz]

Make sure that you are answering Yes when TurboTax asks the improperly worded question asking if the IRA was inherited from a financial institution.  TurboTax is just asking if the distribution was from an inherited IRA (which is actually an unnecessary question since code 4 already says that the distribution was from an inherited account).

A distribution from an inherited Roth IRA is indicated with code T or Q, the same codes as would be used for a distribution from your own Roth IRAs if you are over age 59½, so TurboTax must in this case ask if the distribution was from an inherited Roth IRA.  Again answer Yes to TurboTax's badly worded question.  TurboTax will automatically treat this distribution as nontaxable even though there are cases where some of the distribution might be taxable if the code in box 7 is code T rather than code Q.

[Tom Scott]

My non ROTH inherited 1099Rs are coded 4 in box 7 and I am answering yes to the financial institution question, yet the distribution is still being considered non-taxable (my entire amount of taxes withheld is being returned to me)?????????

[dmertz]

A tax refund simply means that your total tax withholding (and any estimated tax payments) was more than your total tax liability.  The tax refund does not apply to any particular item of income.

Check to see that line 4a of your Form 1040 includes both the amount distributed from the inherited traditional IRA and the inherited Roth IRA, and that line 4b includes the amount distributed from the traditional IRA but excludes the amount distributed from the inherited Roth IRA.  If these are not the results you see, delete and reenter the Forms 1099-R.

[icst19]

Why is the amount counted towards your total taxable income, if the account was inherited by death and the distribution code is T.

[MaryK4]

For an inherited IRA, you must pay the tax that the decedent would have paid so it is included as your income.

@icst19

[dmertz]

icst19, if you inherited the Roth IRA from your spouse and have chosen to treat it as your own, it's no longer an inherited IRA.  To make it nontaxable you must click the Continue button on the Your 1099-R Entries page and answer the question asking whether at the time of the distribution it has been at least 5 year from the beginning of the year for which you or your spouse first contributed to a Roth IRA, and also enter your basis in Roth IRA contributions and conversion.

If you inherited the Roth IRA as a non-spouse beneficiary (or from a spouse and have not chosen to treat it as your own, which usually makes no sense) and indicate to TurboTax that this is an inherited IRA, TurboTax will not include it in taxable income (even though there are some cases where some or all of the distribution is taxable, resulting in under-reporting income on your tax return).